- Changing reading habits. It's not that paper has completely given up the ghost. Even so-called digital natives like college students tend to prefer paper books when it comes to in-depth reading. But daily time spent reading magazines in the U.S. dropped from 20.9 minutes in 2008 to 15.5 minutes in 2013 and may slide to only 10 minutes by 2018. The amount of time spent with online media continues to grow.
- Falling print ad revenue. Investors like money, and a major shift in where ad dollars are flowing is underway. According to Pew's annual State of the Media report, newspaper ad revenues are down 4 percent, while digital ads are up 18 percent.
- Buying the ad coverage you need. One reason print companies were so profitable is that they were similar to old-fashioned records. If you wanted one song, you had to buy the whole album through forced bundling. Similarly, if you wanted one part of a print publication's audience, you had to pay for the whole block. When separate regional editions existed, an advertiser might have been able to select a specific area, although at a higher price per reader. Digital is far more flexible in targeting.
- Automation. A growing trend online is called programmatic advertising. It's a way of automating much of the process of placing ads and also includes the capability of tightly targeting specific individuals that data suggest might be interested in a company's messages. Doing something like that in print requires direct mail, which is vastly more expensive. Advertisers opt for faster, cheaper and better, and investors follow the money.
- Trying to spot the winners. Of course, investors are always looking for winners. Which companies will ultimately be the digital victors and become the online equivalent of old print giants? Although total digital ad spending is up, individual ads are incredibly cheap. So, making real money online takes a lot of work. Reduce the number of publishers, and the ones left standing will have more leverage in negotiations and can perhaps drive up ad rates and profitability over time.
To understand the head-scratching reality that is modern media, consider the following two facts.
First, German publisher Axel Springer just announced it will purchase an 88 percent stake in Business Insider, the digital publishing company started by former Wall Street trader Henry Blodget, for $343 million. That translates into a roughly $390 million value for the company, about six times its annual revenue.
Second, McClatchy (MNI), a long-time publisher of newspapers and now also digital information, last year had annual revenue of $1.15 billion. Its current market value is just $92.8 million.
Yes, a company launched a mere six years ago by a former big-name stock analyst on Wall Street -- someone permanently barred from the securities industry in 2003 for hyping dot-com stocks he privately dismissed as junk -- is worth 4.2 times as much as another media company whose revenues are 19.5 times larger.
It's a strange world that keeps morphing faster than anyone can predict. In 2013, Blodget reportedly tried to sell Business Insider but found no offers at a $100 million asking price.
The difference between then and now is, in a word, panic. At one time, print companies rolled in luxurious splendor with big revenues, high margins and an advertising clientele that needed their particular channel to readers. Now the world has exploded, and the Internet is everywhere, including on your smartphone.
Here are five factors fueling the shift in value of print versus digital:
In that sense, digital media is like so many other industries that have come before. Wall Street wants to ride a rocket and reap the benefit. Until the smoke clears, expect analysts and investors to keep leaning toward the digital while piling paper into a fiscal fireplace because they figure even the revenue advantage the old publishers have will eventually go up in smoke.